Investment Oversight and Diversification : Moorlach Shouldn’t Go It Alone in Handling Vast Sums
The Orange County investment pool, which lost a staggering $1.69 billion through risky plays in the securities markets, still has $3.4 billion left. County officials are right to tread cautiously in deciding who handles that nest egg and to be sure they do not repeat the mistakes of the past.
For years the county treasurer was Robert L. Citron, who leveraged the fund dangerously in the hope of bringing in better returns than similar funds. But when interest rates went up last year, the losses kept piling up and the county filed for bankruptcy last December.
Citron has pleaded guilty to six felonies stemming from his handling of the fund, which since the bankruptcy has been operated by Salomon Bros., the Wall Street firm. John M.W. Moorlach, the man appointed by the supervisors to replace Citron, wants to handle at least some of the money himself. After all, he is the treasurer.
Moorlach is a certified public accountant and financial planner. But he lacks experience investing vast sums of money, as a number of people have pointed out, including the county’s chief executive officer, William J. Popejoy. So while Moorlach deserves the chance to do his job and invest some of the money, he must expect to do so in a carefully monitored environment.
A major mistake of the Citron years was the lack of oversight. In an attempt to remedy that, the supervisors wisely established a committee to oversee the post-Citron investments. But committee members already have quarreled among themselves, and there has been some early controversy during Moorlach’s tenure. One committee member, a respected financial professional, quit the panel. That is unfortunate and does not augur well for what should be a professional relationship between the committee and the treasurer’s office.
As Moorlach starts handling the county’s money, he will have to adjust to the criticism that comes with being a public servant. It’s part of the job when your salary comes from the taxpayers. It is also to be expected at a financially fragile time for the county.
There are any number of ways to invest the county’s money. One, suggested by Supervisor Marian Bergeson, is to let the state-run investment pool handle some of the funds. That seems reasonable, since that pool has a good record.
Another method is to turn the money over to Salomon Bros. or some other Wall Street firm with long experience. The question then is balancing the cost--Salomon Bros. is currently charging the county about $140,000 a month for its services--against the return. The county needs to take due care, however its investments actually are handled.
It is clear from the county’s financial debacle that the investments should not be determined by the ego of one person. There is need for agreement on how to handle the money, monitored by the oversight committee, the chief executive officer and the supervisors. Spreading the funds around so various agencies, public or private, are responsible for them is a good idea, at least for now. The results need to be watched closely. In the clear lens of hindsight, putting all the county’s eggs in one basket was not a good idea.
The supervisors are still working on an investment policy for the treasurer’s office. Diversifying among types of investments, maturities and the people who handle the money is a necessity. So is oversight. County officials will have to demonstrate that they really have learned the bitter lessons of the too-recent past.
